USDJPY to 110?

USDJPY has been on a tear, rising more than 700 pips from its low on election night. The gains continued to build on Monday with the currency pair taking out 108. While we had been looking for the dollar to strengthen further ahead of Yellen’s testimony on the economy, we did not think that it would happen so quickly before a deeper pullback. Ten year Treasury yields rose as high as 2.3% intraday, the best level this year and played a big role in pushing USD/JPY higher.

Technically, the rally in USD/JPY today is finding resistance right below the 50 and 100-period SMA cross on the weekly chart (see below) but the pair’s uptrend is far from over. It has broken above the 200-day SMA and more importantly Trump’s victory was a game changer for the dollar and stocks. These fundamental forces have not run their course and for this reason the dollar’s rally isn’t over. Hitting 110 is not only possible but likely for USD/JPY but rather than chase the move it may be smarter to wait for a pullback towards 107. U.S. retail sales are scheduled for release tomorrow and it’s a tough call because while wages are on the rise, confidence has been low, employment growth slow and gas prices have fallen.